A developed country has a saving rate of 28 percent and a population growth rate of 1 percent per year. Share in output is constant, and that the…

B. A developed country has a saving rate of 28 percent and a population growth rate of 1 percent per year. Share in output is constant, and that the United States has been in a steady state. (For a discussion of the CobbDouglas production function, see the appendix to Chapter 3.) A. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = ( + n + g)k.] B. What is the marginal product of capital in the initial steady state? C. Suppose that public policy raises the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal product in the initial steady state. Explain. D. What will the capitaloutput ratio be at the Golden Rule steady state? (Hint: For the Cobb Douglas production function, the capital output ratio is related to the marginal product of capital.) E.

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